The Rise of Investor-State Dispute Settlement: A Threat to Sovereignty and Climate Action

Investor-State Dispute Settlement (ISDS) is a mechanism that allows foreign corporations to sue governments at offshore tribunals, often composed of corporate lawyers. These tribunals operate in secrecy, without the right of appeal or judicial review, and are accessible only to foreign entities. If a tribunal finds that a government policy threatens a corporation's potential profits, it can award substantial damages, which do not reflect actual losses but rather projected earnings. This system has led to a significant increase in lawsuits against governments, undermining democratic processes and sovereignty.

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In August 2025, a company owned by individuals based in the Cayman Islands initiated a claim against the UK government regarding a coalmine project in Cumbria. The tribunal in Washington, D.C., will hear the case, with the company seeking compensation for potential profits lost due to the UK government's decision to halt the mine. Notably, Geoffrey Cox, a Member of Parliament and former attorney-general, is representing the foreign company. On the same day, it was revealed that Russian oligarch Mikhail Fridman is also suing the UK under ISDS, challenging sanctions imposed after Russia's invasion of Ukraine.

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The use of ISDS has raised concerns about its impact on climate policies. Countries like France, Denmark, and New Zealand have reportedly scaled back their climate ambitions due to fears of litigation from corporations. Legal experts have noted that fossil fuel and mining companies have filed a record number of suits against nations attempting to implement environmental protections. Since the inception of ISDS, corporations have won approximately $114 billion, with fossil fuel companies accounting for $84 billion of that total.

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Critics argue that ISDS undermines democratic accountability, allowing wealthy investors to challenge government decisions without public oversight. A 2020 meta-study indicated that international investment agreements, including ISDS, have negligible effects on encouraging foreign investment. Despite this, the UK government, under Prime Minister Keir Starmer, is reportedly pursuing ISDS provisions in ongoing trade negotiations, including with India, without public transparency.

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Mikhail Fridman's case exemplifies the potential for ISDS to disrupt sanctions regimes. His legal team, which includes Cherie Blair, is leveraging ISDS to challenge the UK's sanctions, raising alarms about the implications for Western governments. Critics, including Tom Wills from the Trade Justice Movement, have described this as a "private legal backdoor" for sanctioned individuals to contest democratic decisions.

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• “ISDS gives wealthy investors a private legal backdoor to challenge democratic decisions. Now we discover that this backdoor is being used by someone sanctioned for their links to the Russian regime.” — Tom Wills, Director of the Trade Justice Movement

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• “This extraordinary, undemocratic power over elected governments could be blocking the money Ukraine desperately needs.” — The Guardian Commentary

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• “We’ve signed trade deal after trade deal and there has never been a problem in the past.” — David Cameron, former UK Prime Minister

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The rise of ISDS poses significant challenges to national sovereignty and climate action. As corporations increasingly exploit these mechanisms, there is a pressing need for public mobilization against the UK government's continued support for ISDS provisions. The implications of these legal frameworks extend beyond individual cases, threatening the integrity of democratic governance and environmental policies worldwide.

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